Pell Grant pays for less and less as a postsecondary education matters more and more

The federal Pell Grant Program serves students from very poor families, according to a new report[1] by the Congressional Budget Office (CBO). However, the ability of the Pell Grant to cover the cost of higher education has declined over time and will continue to in the years ahead. This student aid program was created in 1972 to help improve the access of low-income students to postsecondary education and is the largest federal student aid grant program. For 2012-13, nearly 9 million students across the United States received Pell grants at a cost of $32.4 billion dollars.

The report presents Congress with a range of options for potentially making changes to the federal Pell Grant Program. Eligibility and Pell grant award amounts are determined using various formulas and thresholds. Simply put, the program determines how much a family is expected to contribute towards the cost of a student’s postsecondary education – the estimated family contribution (EFC) – and based on this (EFC), a student may qualify for a Pell grant. The maximum Pell grant award is $5,645 for the 2013-2014 academic year.

The CBO report includes an abundance of data and information regarding the Pell Grant Program; however, the big takeaways highlight the type of students the program serves and the ability of the program to promote college affordability.

Half of the 8.1 million Pell grant recipients during 2010-11 came from families with adjusted gross income (AGI) of $30,000 or less and 24 percent of recipients were from families with AGI below $6,000. For 2012-13 the family AGI threshold required to receive a maximum Pell grant was reduced from $30,000 to $23,000 – likely to control the cost of the program.

In 1979-80 the maximum Pell Grant provided enough to fully cover the average in-state tuition and fees at public four-year colleges, with excess grant dollars available to help pay for other costs of attendance such as room and board. However, for 2011-12, the maximum Pell grant provided enough to cover only 72 percent of the average in-state tuition and fees at public four-year colleges.

Given the critical role of the Pell Grant program in making postsecondary education accessible and affordable, these facts, combined with the significant growth in the cost of a postsecondary education, warrants attention at both the federal and state levels.

The average tuition and fees within the University of North Carolina System increased 60 percent (inflation-adjusted) over the last ten years. During this time period, state support for higher education declined and the Pell grant has steadily covered less of the cost of attendance. For the 2011-12 academic year, more than 223,000 Pell grant recipients enrolled in North Carolina’s public colleges and universities. The average Pell grant of around $3,600 covered only 67 percent the average tuition and fees within the university system.

Any reform of the Pell Grant Program must consider the importance of making college affordable and the anticipated increased demand for workers[2] with postsecondary education in a 21st century economy.

If Congress makes changes to the Pell Grant Program in the years ahead that result in a reduction in access to or the value of Pell grants and students look to other financing options such as Stafford loans, these loans will be more expensive than the cost of such loans today as a result of legislation recently passed by Congress.

Instead, it is time to confront the growing cost of postsecondary education and the best tools to ensure access and increase completion. Ultimately, efforts should seek to align federal financial aid policies with an economic strategy that provides young, freshly minted college graduates the opportunity to actually participate in the economy and not be saddled with burdensome student loan debt.